Can I Use a Private Reverse Mortgage to Purchase Senior’s Home Over Time?
I read your article on reverse mortgages, particularly interested in the pros and cons, but mostly the private reverse mortgage. I would like to purchase a home that is owned by an elderly gentleman (80). He doesn’t want to sell the house at this time and I have time to wait, so I thought we might enter into a private reverse mortgage. I don’t like the low interest rate, but the property should see a good increase in value over time to make up for the interest rate. My concept is that we start with the current home value that I will pay him over time. I would pay $X/month, accumulating interest, until he passes away or moves out of the house. At that time I will pay him or his estate the remaining balance owed. For example if the house is worth $200,000 today, after 10 years he moves out and I have paid him $500/month($60,000) @ 3% interest ($10,045), I will now need to pay him or his estate $129,955 to complete my ownership of the house, independent of future market value. Does this make sense? How can I learn more? Are there sample contracts that I could review? I don’t expect it, but he would want to know what would happen if I stopped paying?
What you’re describing sounds more like an installment sale (or purchase) than a reverse mortgage. It’s not clear whether the purpose of the transaction is to assist the owner because he is cash strapped or to enable you to purchase the property over time, or both. In either case, it’s definitely possible to do what you describe, but it’s complicated.
Another way for you to structure the transaction might be for you to purchase a remainder interest in the property and for the owner to retain a life interest. There are tables to determine the value of each of your interests based on the seller’s age and current interest rates. This alternative may or may not work better for you and the seller than an installment sale.
I’d recommend that you work with real estate counsel who might have experience with this type of transaction and that both you and the seller be represented by separate counsel so there’s no claim that you might have exercised undue influence over the seller.